SMM Metals Reports

Steel Price to Grow up, Iron Ore Price not to down Significantly in 2013

Negatively influenced by the world economy downturn, the Chinese Steel Industry was suffering a disappointed trend in the last 12 months. While after Chinese New Year in February, it is safely predicted by Steelease, that steel price will increase mildly, and iron ore will not plunge greatly in the following year in China.

The rationale under the prediction would be steel seasonal demand rebound coming with supply shortage, along with costs support strongly plus regular inventory terms.

It is displayed by Figure 1, that the Seasonal Adjusted Steel-PMI for Jan 2013 was above 8% greater than the same period of last year, however still approximately 1% lower than Jan 2010. It is therefore showed that the steel demand of downstream rebound seasonally, stronger than earlier 2012 but weaker than earlier 2010.

According to Steelease, the newly issued real estate policy in Feb 2013 has enlarged purchasing restriction. However, it is believed that the effect of 20% individual income tax for second-hand house trading will be smaller than expectation.

Based on the above information, comparing between 2010 and 2013's figures, it is forecasted that a weak but lower inflation pressure will exist in 2013. Thus, a stable while gentle growth is predicted for Chinese steel demand.

The average capacity utilization rate is 82% recently from Figure 2, it is estimated that it would not increase sharply due to the probable governmental environmental protection policy.

Resilient Costs to Support Steel Prices

Figure 3: Platts Index and Average Cost for China's Steel Mills

Steel costs will keep higher to support the price due to the limited downtrend room of iron ore price in the short-term.

Normal Inventory Levels of the Industry Chain

Figure 4: Inventories of Five Steel Products in Shanghai(Million mt)

Since late 2009 to early 2013, the inventory of steel products in Shanghai increased from only 1.5 million mt to a top of around 3.5 million mt in early 2011, and decreasing sharply to only 2.5 million mt by end of the period. According to the inventory cycle, the recovering inventory level would clearly drive crude steel apparent demand in 2013, pushing growth rate to above 8%.

Incorporated in the influence of mild growing demand, stagnating supply, tightening crude steel along with recovering inventory level, it is forecasted by Steelease that the growth rate of apparent steel demand will be around 8.3% for the upcoming year.

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